Lately I’ve been speaking with a lot of SF real estate agents about how the demand in the market has softened since the 8K federal tax credit expired on April 30th of this year. I didn’t really think that 8K would be a huge buying incentive given our high prices, but it seems to be the case.
Since the herd seems to be taking their time right now, a huge opportunity has presented itself for SF buyers: softening demand combined with amazingly low rates. Rates for conforming mortgages are at their lowest level ever! They have never been this low in recorded history. Last week they dipped below 4.5%. I guess the subtlety of the savings is being lost on buyers, but locking a 30 year mortgage at 4.5% is a much better deal than an 8K tax credit.
A few months ago, when the tax credit was still in effect, the rates for conforming loans were well over 5%. Let’s look at mortgage payments for a conforming loan of $417K at 5.5% and at 4.5% :
417K at 5.5% – $2367.68/month
417K at 4.5% – $2112.88/ month
That is a difference of $254.80 every month – and it is all interest savings. That means you’d reach the same savings of 8K in just over 2.6 years! Most people stay at least 5 years in their purchased homes, in which case the savings would be almost double the 8K credit.
The tax credit was an easy way to incent millions of Americans to jump into the market – but the real deals have just begun!